Victoria’s Bass Strait gas at risk from price caps, Woodside warns

“The ideal outcome in terms of gas is that Victorians, indeed Australians, are not expected to pay European prices for something that comes out of the ground here,” Andrews said.

East-coast gas prices have soared this year, driving record sales revenue for gas producers including Woodside, which reported more than $9 billion in sales for the September quarter alone. Prices have been spiking as the war in Ukraine has deepened a global energy shortage as Western nations shun Russian supplies and intensify competition for any available cargoes of liquefied natural gas (LNG). At the same time, cold weather has combined with a series of failures at Australia’s ageing coal-fired power stations to drive up demand for gas-fired electricity generation.

The manufacturing sector has been advocating for the government to set a $10-a-gigajoule cap on wholesale gas prices, warning factories that depend on gas for energy or as a raw material are struggling to stay viable under prices currently trading at more than $20 in Australia’s south-east.

Energy Users Association of Australia chief executive Andrew Richards, who represents large manufacturing firms, said many of his members were “horrified” at the price of gas being offered to them, as they looked to replace expiring long-term supply contracts with new deals priced for the current market. There are reports in the industry of long-term gas supply contracts being offered at more than $40 a gigajoule.

“It’s getting to the point where those companies that can pass the costs through to products on the supermarket shelves can’t compete against imported products,” Richards said. “That’s when they say, ‘What’s the point of staying in business?’”

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Opponents of the proposed price caps, including coal and gas companies whose sales revenue stands to be affected, are ramping up warnings that such a move could deter investment needed to develop new sources of domestic supplies that would be crucial to putting downward pressure on prices in the longer run. The gas industry insists the best way to drive down prices is to increase locally produced supplies closer to the demand centres in Victoria and NSW that need the fuel the most.

Former Australian Competition and Consumer Commission chairman Professor Rod Sims said the three Queensland liquefied natural gas (LNG) exporters should be pressured to sell more gas to the domestic market as part of their social license to operate, with the aim getting prices down to about $10 per gigajoule.

Sims, who ran a years-long inquiry into the east-coast gas market, said he did not believe this would create a disincentive for exploration. “If it’s not economic at $10, then you probably want to leave it in the ground,” he said.

O’Neill on Thursday said price caps would not only derail future Bass Strait investments, but also damage the viability of a proposal to build Victoria’s first specialised shipping terminal to receive imports of LNG from other parts of the country or overseas.

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As output from Bass Strait falls and Victoria faces tighter supplies in coming years, Viva Energy’s proposal to build an LNG terminal at the Geelong oil refinery, which would be able to receive liquefied gas from anywhere in the world and turn it back into vapour, could present a significant short-term source of additional supplies.

If price caps were introduced, O’Neill said, “it’s really hard to see LNG imports being attractive”.

“It might feel good for a short period … but the outcome will be under-investment in supply and under-investment in the kinds of capacity mechanisms things like floating storage re-gasification units that could help alleviate the pressure for the long term,” she said.

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